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By Brendan Gilmartin

Overview

Qualcomm (NASDAQ:QCOM) is slated to report 4Q 2011 earnings after the close on Wednesday, November 2. The results are expected to come through at 4:00 p.m. EST, with a conference call slated to follow at 4:30 p.m. Sympathy Plays: Nokia (NYSE:NOK), Broadcom (NASDAQ:BRCM), Texas Instruments (NASDAQ:TXN)

Outliers & Strategy

Key Metrics:

  • Non-GAAP Earnings Per Share (NYSEARCA:EPS): For the 4Q 2011 period, Qualcomm previously indicated it expects Non-GAAP EPS of $0.75 to $0.80. Guidance tends to be conservative and actual results tend to come in at the high end of forecasts.
  • Revenues: Qualcomm said in July it expects 4Q revenue of $3.86 bln to $4.16 bln.

  • Adjusted EPS Guidance & Revenue Guidance (1Q 2012): Guidance for the next quarter will be watched closely, given that results for the 4Q period are largely priced into the shares.

  • At 20.43x trailing earnings, Qualcomm is trading at a discount to the 5-year average (25.4x), but just 15.4x forward profits. With an expected 5-year earnings growth rate of 15%, the FWD PEG ratio is about 1.0.

  • Over the past several quarters, Qualcomm has benefited from its relationship with Apple, supplying chips for the popular iPhone device. Recall back on July 6, several media outlets reported that Apple had begun ordering new components for the new iPhone 4S. iFixit later confirmed after the launch that the device uses a wireless chipset from Qualcomm.

  • Despite the enthusiasm over the iPhone 4S, recall that Broadcom, which makes the Bluetooth and Wi-Fi combo chip for the popular device, guided 4Q revenues below consensus estimates, citing “potential industry softness.” Qualcomm shares may have discounted this news, however, with the shares off more than 10% from the July highs.

Recent News

  • 10/12: Piper Jaffray reiterated an Overweight rating and $83 price target on Qualcomm, according to Benzinga.com.
  • 10/11: Qualcomm announced a quarterly cash dividend of $0.215 per common share. The yield is a mere 1.6%.

  • 10/03: According to a report on Barron’s, Cannacord Genuity believes Qualcomm could get a boost from surging 3G demand in China. The firm carries a Buy rating and a $72 price target on Qualcomm. Meanwhile, FBR Capital pointed out Qualcomm is seeing fundamental strength relative to its peers, based in part on demand forecasts for the next iPhone and projects earnings and revenue guidance for 1Q 2012 to exceed analyst estimates. The firm carries an Outperform rating and $70 price target.

Technical Review

Qualcomm shares are up more than 15% from the recent lows near $46. Since early last month, Qualcomm has struggled to hold the 200-Day SMA near $54 and now finds itself in a congestion zone between $51 (50-Day SMA) and $54. Should the stock manage to break out of this range, there is upside toward the recent high near $59. Below the 50-Day ($51), there is little support until the $46/$47 area. (Chart courtesy of StockCharts.com)

QCOM Chart

Summary

Qualcomm shares have meandered in a narrow range headed into the 4Q 2011 earnings release. Enthusiasm stemming from the iPhone buzz is providing a lift, along with forecasts for increased 3G & CDMA demand, expansion in China, and expectations that smartphone demand will be robust into 2012. Despite the positive backdrop and upbeat sell-side sentiment (mean price target is about $64 with 35 Strong Buy/Buy ratings), Qualcomm has failed to hold the 200-Day SMA near $54. With that being said, Qualcomm still needs to deliver 4Q 2011 results at the upper-end of the range provided back in July and provide a solid forecast for 1Q 2012 if the shares are to break out above the upper end of the recent trading range. Should results fall flat or shy of estimates, Qualcomm could be at risk of re-testing the recent lows near $47, given the positive sentiment surrounding the name.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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Source: Earnings Preview For Qualcomm: Will iPhone Chipsets Drive 3Q Results And Outlook?

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